MARC has affirmed a rating of A+ID to Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (“Kesturi”) issuance of up to RM780 million redeemable secured serial bonds under an Islamic Istisna Sukuk (“Sukuk”). The assigned rating reflects amongst others, Duta-Ulu Kelang Expressway’s (“DUKE” or the “Highway”) strategic alignment connecting the North Klang Valley Expressway on the western part of Kuala Lumpur to the Kuala Lumpur – Karak Highway on the eastern side of the city and onwards to Middle Ring Road 2 (“MRR2”) at Jalan Ulu Kelang, and the Federal Government’s (“GOM”) funding support as well as its commitment to bear all costs in relation to land acquisition.

However, moderating the above positive factors is the uncertainty surrounding the projected traffic demand given the presence of alternative routes as well as the sensitivity of toll users to the proposed toll rates.

On 12th August 2004, Kesturi was appointed by the GOM as the concession company to design, construct, operate, manage and maintain the DUKE. In return, Kesturi would be given the right to manage the toll operations and collect toll receipts under a concession agreement with the GOM for a period of 34 years (3 years construction period and 31 years of operational period). Kesturi is wholly-owned by Nuzen Corporation Sdn Bhd which is a joint-venture company between Wira Kristal Sdn Bhd and Malaysian Resources Corporation Bhd. As at end March 2006, nevertheless although construction is slightly behind schedule by 1.5%, the construction of the highway is expected to be on track for its completion date of October 2008.

Site risk lies with the GOM to make all the land available to Kesturi and bear all acquisition costs. Construction risk is manageable given Ekovest Construction Sdn Bhd’s (the turnkey contractor) extensive experience in infrastructure and building works. The more difficult section for the construction is the elevated portion in densely populated areas of Sentul and Jalan Ipoh. The risk of construction cost overruns is mitigated through the fixed sum fixed date turnkey contract with the main contractor. Any delay risk has been passed to the contractor through the back-to-back liquidated ascertained damages arrangement in the turnkey contract.

The appointment of an experienced Independent Consulting Engineer (“ICE”), Perunding ZKR Sdn Bhd, acting on behalf of the financiers, strengthens the construction surveillance process by ensuring that construction works are executed in compliance with the turnkey contract, budget and timeline.

Tolling on the highway is on an ‘open basis’ concept and the three toll plazas are located along DUKE’s alignment. The Highway is designed as a unidirectional toll plaza where motorists plying the Highway will only be paying once whichever direction they take.

The amortization of the Sukuk is spread over nine years, commencing in year 2010. Based on MARC’s sensitivity analysis on the traffic forecast, the projected Finance Service Coverage Ratio is expected to average around 1.9x throughout the tenure of the Islamic facility.